A passing thought

Something that has long disturbed me is the relentless faith in (free) markets that is held on to, seemingly, by those most able to benefit. At one level this can be viewed as everyday self justification, but when you talk with people they often appear to really and genuinely believe in what they are saying. It is as if a belief in a free market economy has become an accepted ‘truth’.

I have my doubts. It seems to me that in a truly free and unregulated market, the strong and clever will always gain through the knowing and deliberate disadvantage of the weak and less able. I’m not suggesting here that everyone is equal in ability or should be paid or have their views treated as if they were, but there is a wide gap between rewarding ability and accepting dishonest behaviour. Particularly where this behaviour disadvantages those who are either powerless or have insufficient knowledge and resources (which is effectively the same thing) to be able to see or deal with it.

One example, we have laws about ‘insider dealing’ in financial markets. That is, it is illegal to make financial trades (buying or selling company shares for example) based on knowledge held by an individual that is not in the public domain. In other words, all investors should have access to the same information (obviously this falls down at the first hurdle if you compare an ordinary member of the public with a specialist investment house). The intent of these laws is to protect investors against being disadvantaged unfairly by a person or corporation that uses non-public knowledge to make large sums of money at other investors’ expense.

Now, whilst this principle is broadly adhered to, I suspect the reason is that most corporate investors don’t want to lose as a result of insider trading, not that they really don’t want to gain at others’ expense. However, I think it is clear that the ban on insider trading actually sits at some level of conflict with the notion of a free market. It is clearly a restraint on the freedom of individual investors and contradicts each investors desire to gain an edge, which is what all the strategies are ultimately about. No, I think the corporate and free market mindset will seek any way to deliver on the profit motive, provided that it judges the risk as being acceptable.